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description

The sales manager and controller have to decide on a price for a textile that lost significant market share as a result of a recent price increase. Information on manufacturing costs and on the pricing behavior of Beauregard and its only competitor are available for analysis. The case provides an opportunity to practice contribution analysis, considering fixed and variable costs as reported in a typical cost report. Also tests the students' ability to recognize the need to consider the situation from the competitor's point of view. Finally, it poses a prisoner's dilemma for the two firms where each would prefer a set of prices unfavorable to the other so that prices are likely either to be unstable or to be stable at a suboptimal level for both parties. The class can close with students attempting to devise a pricing strategy that would reach the optimal level.